Roll Out Soon! Important IRS Tax Credits for Families to Know Before the New Year

As the year comes to a close, families across the United States should be preparing for tax season. One of the best ways to reduce your tax liability and maximize your refund is by taking advantage of various IRS tax credits. These credits are designed to help families save money and provide financial relief, especially in times of economic uncertainty.

Before the new year rolls around, it’s crucial to be aware of the tax credits you may be eligible for, how they can benefit you, and what steps you need to take to ensure you’re getting the full benefit. Here’s an overview of some of the most important IRS tax credits for families that you should know about.

1. Child Tax Credit (CTC)

The Child Tax Credit is one of the most significant tax benefits for families with children. In recent years, the CTC has undergone changes aimed at increasing financial support for households with qualifying children.

• Eligibility: To qualify for the Child Tax Credit, you must have a child under 17 years of age who is a U.S. citizen, U.S. national, or U.S. resident. The child must also have lived with you for more than half of the year and meet other IRS criteria.
• Amount: The credit for 2023 is up to $2,000 per qualifying child. However, the amount you can receive may vary depending on your income. For higher-income families, the credit phases out.
• Advanced Payments: In previous years, the IRS issued advance payments of the Child Tax Credit, but this practice may not continue in 2023. Be sure to check if any credits were issued to you in advance to avoid any confusion.

Action Step: Double-check your eligibility for the Child Tax Credit and ensure you have the correct information about your children’s ages and residency status. You will claim this credit when you file your tax return in 2024.

2. Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is designed to help low-to-moderate-income families by reducing the amount of taxes owed and possibly providing a refund. This credit is especially valuable for working families and can provide significant financial relief.

• Eligibility: To qualify for the EITC, you must meet specific income limits, which vary depending on your filing status and number of children. You also need to have earned income from working for someone else or from self-employment.
• Amount: The EITC amount ranges from $500 to over $6,000, depending on your income level and number of dependents. The credit increases as your income goes up, up to a certain point, and then begins to phase out for higher earners.
• No Children: Even if you don’t have children, you may still qualify for a smaller EITC, but your income must be below a specific threshold.

Action Step: If you have earned income, check your eligibility for the EITC. Review the IRS guidelines for income limits and family structure to see if you qualify, especially if you have children or are filing jointly.

3. Child and Dependent Care Credit

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The Child and Dependent Care Credit is designed to help families cover the cost of child care or care for a disabled spouse or dependent while they work or look for work. This credit can be a game-changer for families with significant child care expenses.

• Eligibility: To qualify, the care must be for a child under 13 years old or for a spouse or dependent who is physically or mentally incapable of self-care. The care must be provided so that you or your spouse can work or actively seek employment.
• Amount: The maximum credit for 2023 is 35% of qualifying expenses, with a maximum of $3,000 for one child or dependent, or $6,000 for two or more. This means you could get a credit of up to $2,100 for two or more dependents.
• Qualifying Expenses: Expenses include payments for daycare, after-school programs, or summer day camps. However, it does not cover expenses for overnight camps.

Action Step: If you paid for child or dependent care in 2023, gather all receipts and documentation. You’ll need to report these expenses on your tax return to claim the credit.

4. American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit is a tax credit aimed at helping families pay for higher education. If you or a dependent are enrolled in college or other postsecondary education programs, this credit can significantly reduce the financial burden.

• Eligibility: The AOTC applies to students pursuing a degree or other recognized education credential. The student must be enrolled at least half-time for one academic period during the year. This credit is only available for the first four years of postsecondary education.
• Amount: The credit can be up to $2,500 per eligible student, with 40% of it (up to $1,000) being refundable. This means even if you owe no taxes, you could still receive a refund.
• Qualified Expenses: The AOTC covers tuition, fees, and course materials required for attendance.

Action Step: If you or your dependent are in school, make sure to collect all relevant tuition and fee statements. This will help you determine the amount of the credit you can claim.

5. Adoption Credit

Families who have recently adopted a child can take advantage of the Adoption Credit to help offset adoption-related expenses. The IRS allows you to claim expenses for adopting children under 18 years old, including both domestic and international adoptions.

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• Eligibility: The credit applies to both adopting a child and the adoption of children with special needs. There are income limitations for this credit, so it is important to verify whether you qualify based on your income.
• Amount: For 2023, the maximum credit is $15,950 per child, though the amount is subject to income limits.
• Qualified Expenses: These include adoption fees, court costs, legal fees, and other expenses related to the adoption process.

Action Step: If you adopted a child in 2023, be sure to gather all records of your adoption-related expenses. Filing for the Adoption Credit will help offset the costs associated with adoption.

Conclusion

As 2023 comes to a close, it’s important to take a proactive approach to your taxes, especially if you are a family. Understanding these tax credits — from the Child Tax Credit to the Adoption Credit — can help ensure you maximize your potential refund and reduce your tax burden. Be sure to check your eligibility, gather necessary documentation, and make any necessary updates to your tax records.

Remember, tax laws are subject to change, so staying informed is key to making the most of these credits. If you’re unsure about which credits you qualify for or need help navigating your options, consider consulting with a tax professional before the new year.